On the 23rd, the U.S. House of Representatives passed the FIT21 cryptocurrency bill. According to Coindesk, the U.S. House of Representatives passed the “21st Century Financial Innovation and Technology Act” with 279 votes in favor and 136 votes against, with a strong performance from the House Democrats. The passage of the cryptocurrency market structure bill signifies the most significant legislative achievement for the industry in Congress. The digital asset legislation passed by the House now passes the cryptocurrency baton to the Senate, although the likelihood of swift action by the Senate remains low.

Introduction

FIT21, also known as the “Financial Innovation and Technology for the 21st Century Act,” aims to provide greater clarity in U.S. regulation of cryptocurrencies for everyone in the industry. If passed, it should:

• Provide a secure and effective pathway for blockchain projects to launch in the United States.
• Clarify the jurisdictional boundaries between the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) regarding who regulates cryptocurrencies and whether digital assets are securities or commodities.
• Ensure supervision of cryptocurrency exchanges and further protect American consumers by implementing rules for cryptocurrency trading.

What is included?

The FIT21 bill, also known as HR 4763, establishes a regulatory framework for the U.S. digital asset market by:

Defining the unique structural issues of digital assets.

Providing clear and robust consumer protection.

Clarifying which digital assets fall under the jurisdiction of the Commodity Futures Trading Commission (CFTC) and which fall under the jurisdiction of the U.S. Securities and Exchange Commission (SEC).

• This is crucial because there are key differences in the definitions of “commodity” and “security,” which affect how they are regulated.
• The U.S. Commodity Futures Trading Commission (CFTC) will regulate digital assets as commodities “if their underlying blockchain or digital ledger is functional and decentralized.”
• The U.S. Securities and Exchange Commission will regulate digital assets as securities “if their underlying blockchain is functional but not decentralized.”

The bill defines decentralization as “among other requirements, no single party has unilateral control over the blockchain or ledger and neither the issuer nor any affiliated party controls 20% or more of the digital asset or its voting rights.”

The bill also specifies other consumer protection requirements, such as customer fund segregation, lock-up periods for insiders (to incentivize innovation rather than speculation alone), annual sales limits, and disclosure requirements.

These measures are akin to the regulatory protections implemented by regulatory agencies following the prosperous period of the 1920s stock market in the United States, which saw a subsequent market crash in 1929 leading to the Great Depression. Once these regulations are in place, the United States will enter an unprecedented era of growth and innovation in the market and economy.

No Content?

Some industry insiders express concerns that the bill sets very high thresholds for decentralization, potentially making it difficult for projects to meet these criteria and allowing the U.S. Securities and Exchange Commission (SEC) too much jurisdiction by enabling the revocation of any token or project that becomes “re-centralized.” Others worry that the bill does not provide stricter boundaries between the jurisdiction of the SEC and the Commodity Futures Trading Commission (CFTC).

However, while the bill may not be perfect, it will provide the regulatory certainty necessary for the cryptocurrency industry to continue operating and innovating in the United States.

Some ask, why regulation?

The belief is that no regulation is unrealistic, and clearer rules are better than chaotic ones. Regulation, along with a clear path to compliance for businesses, allows innovators to build trust with the public and provide useful products while holding any malicious actors more accountable.

Who is Behind This?

The FIT21 bill is a joint effort of the House Financial Services Committee (responsible for overseeing the Securities and Exchange Commission) and the House Agriculture Committee (responsible for overseeing the Commodity Futures Trading Commission), with support from the industry. Last July, the Financial Services Committee passed the bill with the support of six Democrats and all Republicans on the committee, and it also passed unanimously through the Agriculture Committee. Since then, the bill has enjoyed bipartisan support.

Why now, and what can you do to help?

The vote on this bill will take place in the coming weeks, marking a nationwide referendum on cryptocurrency in the United States. Therefore, ensuring the bill’s strong bipartisan support is crucial. Afterward, it will still need to pass through the Senate and be signed by the President to become law. So, we are currently at a critical juncture. To contribute, we urge you to contact your local representatives through the Stand with Crypto website.

Why is This Important?

Despite the existence of the cryptocurrency industry for over a decade, there is still no comprehensive regulatory framework for digital assets in the United States. The current regulatory landscape is fragmented, incomplete, and lacks clarity. This regulatory uncertainty not only creates a confusing environment for innovation but also provides a breeding ground for bad actors. As we have seen, companies and individuals with malicious intent can easily launch products exploiting regulatory gaps.

Meanwhile, responsible actors—legitimate entrepreneurs and startups—face suspicion under the “enforcement-based regulation.” This approach harms innovation in the United States, especially as other countries continue to innovate, and it is detrimental to the long-term dominance of the dollar, American consumers, and the overall U.S. economy.

When other jurisdictions offer appropriate regulatory regimes, startup activity often shifts overseas. This is not an abstract concern: startups create jobs, and economic value, and may develop into the next big tech companies. For example, Amazon, Apple, Facebook, Google, Microsoft, Netflix, NVIDIA, and Salesforce are all American companies founded within the past 20 years. Today, they not only dominate market value but also profoundly influence our daily lives. The passage of the FIT21 bill creates an environment supportive of innovation, allowing the cryptocurrency industry to realize its full potential while avoiding the formation of a situation where a few large tech companies monopolize the market and act as gatekeepers for the majority.

Regardless of your views on cryptocurrency, it represents more than just a financial opportunity; it signifies a significant technological paradigm shift, akin to how personal computers, mobile phones, and the internet have transformed our world.

While the internet stands as one of the most significant technological innovations in human history, it is failing consumers, creators, and developers who rely on it today. Blockchain, cryptocurrencies, and Web3 can address this issue in multiple ways: from authenticity proofs targeting deepfakes and identity verification for AI to more voices and choices in social media platforms to more inclusive payment systems, and beyond. But we need an enabling environment for these innovations to continue to thrive in the United States.

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